In a development that has caught the attention of many, kARACHI: Pakistan could once again tap Iranian crude oil supplies following a temporary easing of US sanctions on Tehran, reopening the possibility of sourcing discounted crude and refining it locally to produce higher-value petroleum products. While industry experts say local refineries are technically capable of processing Iranian crude, commercial and operational challenges remain, particularly due to the high furnace oil yield and the absence of significant domestic demand for the fuel.

Background and Context

Several key factors have contributed to the current state of affairs.

Pakistan Refinery Ltd ( PRL) had previously imported Iranian crude under a long-term contract with the National Iranian Oil Company, but purchases halted after US sanctions were imposed.

Commenting on the prospects for refining Iranian crude oil, a past head of a leading refinery in Karachi told Dawn that the scenarios are changing and sanctions are being lifted temporarily.

What has become increasingly clear is that discounts, demand and tech upgrades will decide prospects for refining heavy crude grades “ We can refine Iranian light crude oil, but due to steep furnace oil ( FO) content, it is not a commercially viable option, particularly when there is no domestic market for the FO due to its negligible usage in the power sector.

Political Implications

The depth of the response underscores how closely this situation is being watched.

When called on whether India is refining Iranian crude, he said Indian refineries are mostly deep-conversion units equipped with hydrocrackers, hydrocokers, residue fluid catalytic cracking units, etc.

Of particular significance is the fact that this gives them the flexibility to approach crude ranging from heavy to light grades into value-added products like diesel and petrol.

As the story continues to develop, during the last 16 years, he declared, predominantly of the refineries have changed their crude recipe from sour heavy to light and sweet crude for the refinery economics and sustainability.

What This Means for Americans

The impact of this situation is expected to be felt across multiple areas.

He said barring Pak Arab Refinery Ltd, which has a mild cracker unit — other refineries in Pakistan do not have hydrocracker units.

At the same time, as per the quarterly report ending March 31, Pakistan Refinery Ltd is reportedly working on this as it is engaged with the government for restoration of taxable status of petroleum products and brownfield policy amendments, which remain vital for the company ’ s sustainable operations as well as successful execution of the Refinery Expansion and Upgrade Project ( REUP).

Adding further dimension to the story, pRL is committed to the REUP, which will double the refinery ’ s crude processing capacity from 50,000 barrels per day to 100,000 barrels per day, practically eliminating high sulphur furnace oil and producing Euro V refined products.

Alongside the primary story, historically, Pakistan imported Iranian crude at a discounted realised price compared to imports from Saudi Arabia and the UAE, with discounts on average during 2009-12.

At the same time, sourcing crude oil from Iran could generate import cost savings of $ 170-340 million for Pakistan, assuming it imports 10-20pc of its total petroleum requirement at a discount, including freight savings.

What Comes Next

This story will continue to develop. Observers, policymakers, and citizens will all be watching what happens next in a situation that has already proven to be significant in multiple respects.